©Deirdre Nansen McCloskey | COPYRIGHTED MATERIAL

Dissing the Golden Goose in the City of London

by D.N. McCloskey, November 2011
Filed under editorials

"A cottager and his wife had a hen that laid a golden egg every day. They supposed that the hen must contain a great lump of gold in its inside, and in order to get the gold they killed it."

The protesters in the City understand Aesop's fable as a warning against the greed of bankers and arbitrageurs. The exploitation of poor people, they suppose, yields a golden egg to the wretched 1-percenters. "Don't kill us hens," they say. "Give a little."

Understood. And if their zero-sum theory were true, the moral would be a good one. If the 1-percenters got rich by appropriating eggs from poor people, I'd join the protest. Aux barricades!

But it's not the good moral, and I won't be joining the barricades. The moral that fits the modern case is the City's best reply to the occupiers: "Don't kill the system that made you so well off, at any rate by comparison with your ancestors, or even now by comparison with most of the world's people." The truth is that since about 1800, free and innovative markets from London to Hong Kong have delivered every day a Great Fact of golden eggs, for the poorest among us. The source of our income is not a big, fixed lump of gold, to be shared out between the rich and poor. It's the daily making of the golden egg that matters.

The news from economic history is that income per head in Britain during the Napoleonic Wars was about £3.75 a day. The news is utterly uncontroversial, agreed to by all economic historians, left or right. It's a plain fact, more settled even than many in astronomy. The old average of £3.75 a day is figured in 2011 London prices, about the price of a half pint at Ye Olde Cheshire Cheese. To put it in sad context, the average Briton in 1800 didn't do much better than the average North Korean nowadays.

The British average since then has risen by at least a factor of 16, or 1500 percent, to £59 a day, the poor experiencing a still larger real increase. Further, the factor of 16 is a lower bound on the Great Fact. Most goods and services are superior to what they were in 1800-orange juice in winter and central heat away from the fireplace. What is more, our antibiotics and public water supplies and correct theories of medicine and of economics are all incomparably better than what was on offer in 1800. By contrast to items like orange juice and house heat or yachts, note, they are spread equally among the 1 and the 99 percent. Total welfare of the poor has therefore increased more than the average. As the American economist John Bates Clark predicted in 1901, "The typical laborer will increase his wages from one dollar a day to two, from two to four and from four to eight. Such gains will mean infinitely more to him than any possible increase of capital can mean to the rich. . . . This very change will bring with it a continual approach to equality of genuine comfort." Unlike most economic predictions, this one was spot on.

Why did it happen? Oddly, ideas, words, ideologies, rhetorics. Economic historians such as Joel Mokyr, Jack Goldstone, Eric Jones, and Margaret Jacob have concluded that merely material explanations work poorly. We didn't get rich by trading with India or stealing from the poor or even by piling brick on brick, or BA on BA. We got rich because, starting in Holland in the seventeenth century, we gave liberty and dignity to the bourgeoisie. We accepted the Bourgeois Deal: "You let me engage in creative destruction in the economy, as painters and musicians do in their fields, and in the moderately long run I'll make you rich."

The best scientific evidence that rhetoric matters most is the recent experience of China and India. After 1978 the Chinese stopped shooting millionaires and started admiring them, or at least letting them do their nasty little millionaire things. Incomes commenced doubling every 7 or 8 years. Then the Indians, mortified by this development, stopped in the late 1970s making movies attacking businesspeople and admiring bureaucrats. When Bollywood's insight started to be made into law, after 1991, Indian income started growing at comparable rates.

Sneering at the bourgeoisie and admiring the aristocracy in Shakespearean England yielded trivial growth. Maoism and Great Leaps Forward, or Gandhi combined with LSE socialism, yielded the same. When in the eighteenth century the British became a polite and commercial people, the modern world began.

Watch it. There's no lump of gold inside the goose. Talking about the lump leads to unhappy economic policy, such as the License Raj or backyard blast furnaces. Rhetoric matters, all the way down.